Parker-Hannifin Corporation

Hello and welcome to the Parker Hannafin Corporation's fiscal 2023 fourth quarter and full year earnings conference call and webcast. At this time, all participants are on a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Todd Liam Bruno, Chief Financial Officer. Thank you. Please go ahead.

Thank you so much, Donna. And good morning, everyone, and thank you for joining Parker Hannafin's Fiscal Year 23 Fourth Quarter and Full Year Earnings Release Webcast. As Donna said, this is Todd Liam Bruno, Chief Financial Officer, speaking. And with me today for the webcast is Jenny Barmentier, our Chief Executive Officer, and Lee Banks, our Vice Chairman and President. I think everyone knows we released our results and all of these slide materials this morning. Our comments today will address forward projections and non-GAAP financial measures. On slide two of this presentation, you will find specific details to the disclosures that we are making in respect to both non-GAAP financial measures and the forward projections. Just as a reminder, actual results could vary from what we speak about today in this presentation. based on all of the items listed here in these disclosures. Our press release, this presentation, and all reconciliations are available under the investor sections at Parker.com and those will remain available for one year. Today we're going to start with Jenny addressing some of the highlights of our strong fourth quarter and really what was a transformational fiscal year for Parker. She is also going to reiterate some reasons that show why Parker is so well positioned for the I'm going to follow up with just some color on how the quarter wrapped up and provide some details around our initial FY24 guidance that we released this morning. Jenny will wrap up the call with some key messages, and then we're going to open up the lines for Q&A for Jenny, Lee, or myself. So now I'll ask you all to move to slide three, and Jenny, I'll hand it over to you.

Thank you, Todd. Good morning to everyone, and thank you for joining our call today. Q4 was a quarter of outstanding performance across all of Parker, starting with safety. We remain in the top quartile with a 20% reduction in recordable incidents. Safety has been and will remain our top priority. We had record sales of $5.1 billion in the quarter, a 22% increase over a prior year with organic growth of 6%. This is our second quarter above $5 billion in sales. We achieved record adjusted segment operating margin of 24%, a 110 basis point increase over prior year. And as we discussed last quarter, our backlog coverage remains resilient at 55% and has increased 1% sequentially. The wind strategy and portfolio changes have delivered a strong finish to a great year. Next slide, please. A great and transformational year. On the right side of the page, you can see highlights from fiscal year 23. Again, it all starts with our team. Top quartile safety and engagement delivers these results. We now have approximately 30% of the portfolio in aerospace and defense, and we couldn't be happier with the progress of the MEGA integration. The team is exceeding our expectations. And a record $3 billion operating cash flow, 22% higher than prior year. allowing us to make great progress in paying down debt. Todd will give you a few more details on this in his upcoming slides. Next slide, please. Many of you have seen this slide before. As you know, over the past eight years, we have strategically reshaped the portfolio to double the size of aerospace, filtration, and engineered materials. I'd like to draw your attention to the middle of the page for the FY23 updates. The dotted line represents where we originally forecasted our longer cycle and secular trends revenue to be at the end of the year. The arrow and new solid line represent that we have realized a bigger shift to longer cycle revenue. The combination of the portfolio changes and secular trends is all ready and will continue to create a profound shift in our revenue mix. We have high confidence that by FY27 we will have approximately 85% of the company in long cycle end markets and industrial aftermarket. This mix shift is further reason why we will grow differently in the future. Next slide, please. Diving a little deeper into our future sales growth drivers, the five buckets on this slide will allow us to achieve our FY27 target of 4% to 6% organic growth over the cycle. The wind strategy is our business system. It delivers growth and financial performances. Every tool in this system expands margins. CapEx reinvestment is addressing the last decade of underinvestment as well as investments to strengthen and develop the supply chain. This will result in increased equipment spend and higher levels of automation. And under innovation, our new product blueprinting tools and simple by design principles have increased our product vitality index, that is the percent of sales from new products. This enables faster growth and support of the secular trend. The acquisitions we have made are great companies with higher growth rates, aftermarket, and accretive margins. We continue to benefit from the growth related to secular trends. We expect multiple years of solid growth in aerospace, driven by both commercials and defense. And we are enjoying an increased bill of material on all electric passenger vehicles and continue to partner with our mobile customers on electrifying their equipment and helping them to achieve their carbon neutral goals. And today, two-thirds of our portfolio enables these clean technologies. Again, all of this giving us high confidence to grow differently than we have in the past and achieve our four to six percent organic growth over the cycle. Next slide, please. As a reminder, living up to our purpose Top quartile performance and being great generators and deployers of cash is what drives Parker. This slide provides an update on living up to our purpose, enabling engineering breakthroughs that lead to a better tomorrow. We are committed and on track to be carbon neutral by 2040 and achieved a 20% carbon reduction in fiscal year 23. And we are proud to be in the first quartile of the carbon disclosure project on climate change. Post-pandemic, Our teams were anxious to get back into the communities where we work and volunteered over 10,000 hours in fiscal year 23 to help serve others. And again, our clean technologies are critical in helping our customers achieve their carbon neutral goals. Next slide, please. The combination of our growth drivers and living up to our purpose points to a very promising future for Parker. We are committed to our FY27 targets of growing EPS from $21.55 to $30 and achieving 25% adjusted segment operating margin. Growth from secular trends, continued transformation of the portfolio with MEGIT, and continuing to accelerate our performance with Wind Strategy 3.0 will drive top quartile performance and organic growth of 4% to 6% over the cycle. We have entered fiscal year 2024 on a solid foundation. The guidance that we are sharing with you today reflects continued progress to these FY27 goals. Todd will go through the quarter and the guide, and then I will be back with more comments on our guide assumptions and why we are still very bullish about the future and the 4% to 6% organic growth over the cycle. Over to you, Todd.